Gross versus net returns: Know your costs!
June 30, 2014 / Written by Rich Harvey
If you're the proud owner of an Australian property investment, one word that should be on your mind is "return". More specifically, how big your returns are.
While it may seem simple to calculate, as with most things in the property game, there are distinctions to keep in mind. One example is the difference between a gross return and a net return.
Gross doesn't tell the whole story
When adding up your property investment returns, it's important to keep track of what really matters.
While a nice round gross return number may bring a smile to your face, it won't tell you the whole story. Gross returns are profits before any fees, expenses or deductions.
So while a property may offer you a high gross return, that's not necessarily how much money you'll be putting in the bank.
Net returns are a much more exact number, as these are your profits with all expenses and taxes taken out, showing how much money you actually walk away with from an investment once all fees have been paid.
Be particularly careful of strata fees. While a sales agent may promote an apartment with a gross yield of 5.6 per cent, you need to dig a bit deeper and work out if there are any special levies proposed, or check that the sinking fund has adequate reserves.
The same goes for property management fees and maintenance. As a savvy investor, you need to make an allowance for annual repairs and the cost of a good property manager - they are a valuable person on your team! Also don't forget insurance, rates, land tax, water rates and council rates.
So while you want a property that provides you with a high gross return, it's essential to make sure it gives you a good net return, as well.
The right returns for your needs
While investors will generally want to bring in income from a property purchase, this isn't always the case.
For instance, if you're hoping to reduce your overall tax burden, investing in a negatively geared property that provides you with net returns that are less than your costs can be a smart strategy.
Of course, finding the right property for your needs can be easier said than done. Whether you're in the market for high rental yields, solid capital growth or anything in between, working with an experienced buyers agent will streamline the process and make it that much easier to reach your investment goals.
Our team of buyers agents will help you create the right strategy and target investment properties with a high net yield. Recently we have assisted many investors find dual living properties (an attached dwelling with 3 beds one side and two beds the other) which deliver a fabulous yield and positive cashflow investment.